Minnesota General Tax

Minnesota State General Tax Background:

During the 2001 legislative session, Minnesota enacted a state business property levy. Revenue from the new tax was to be deposited in the state general fund with some of the money earmarked specifically for education funding. Inexplicably, seasonal property was included in this business tax.

In 2002 the Legislature and Governor deposited the revenue in the general fund. None of the money has gone towards education.

Why should cabins and hunting land provide Commercial/Industrial property with a $40 million a year subsidy?

There are three types of property that must pay the state general tax:

  1. Class 3 - commercial, industrial, and public utility.
  2. Class 4c(1) - seasonal recreational property, including cabins.
  3. Class 5(1) - unmined iron ore property.

In 2009 the Statewide Business Property Tax totaled about $750 million, of which seasonal property paid $40 million.

In 2008 and 2009 MSRPO, with the help of Senate Tax Chair Tom Bakk, pushed a bill to remove seasonal from this tax. Governor Pawlenty objected, threatening a veto if the language was included.

This begs the question - why should seasonal property be forced to give commercial/industrial property a $40 million a year subsidy. Unlike businesses, we cannot raise prices to defray the costs. Our inclusion on the tax simply makes no sense.

How much is the tax?

The tax for noncommercial cabins are calculated a little differently than taxes on other affected properties.

The first $76,000 in market value of a cabin will be taxed at 0.40%, while the tax rate for cabins with a market value of $76,000-$500,000 will be 1.00%. The tax rate for cabins with a market value of over $500,000 is 1.25%.

For example, if you have a cabin valued at $100,000 the first $76,000 of market value would be subject to a tax rate of 0.40%, while the remaining $24,000 market value would be taxed at 1.00%.

The Minnesota Department of Revenue will calculate the tax rate annually. The rate is determined by the relative amount of statewide commercial/industrial, public utility, seasonal recreational, and unmined iron ore property value in relation to the expenditure needs have been established. For the year 2002, $592 million needed to be raised from the state tax. Under law each subsequent year's amount will be increased from the previous year's amount by using the inflation index. By 2008 the tax had ballooned to $776.6 million.

What is the tax used for?

The money raised does not go to local governments. Instead, money raised by the tax is deposited in the state general fund.